Worst-case scenario? More violence against Israel, says former Secretary of Defense William Cohen.

"And then I think you are looking forward to armed conflict with large-scale catastrophic damage to both sides," he says.

Dealing with Hamas — a known terror group — raises tough questions for all sides:

What does the U.S. do?
Most likely, freeze aid to the Palestinians, who received nearly $400 million last year. The hope is they can use money to entice Hamas to renounce violence and recognize Israel.

But privately, U.S. officials say they will have to permit some aid to flow.

So what does the Hamas victory mean for peace?
Israel says it won't negotiate with Hamas. The political backlash could even help Binjamin Netanyahu, who opposes the peace process, regain power in upcoming elections. Before the Hamas victory, he was running a distant third.

As for Hamas, by all accounts, even it didn't expect to win.

"Now it will have to decide what is more important: meet the day-to-day needs of the people that elected it," says Martin Indyk, a former U.S. ambassador to Israel, "or continuing its radical extremist terrorist philosophy of the destruction of the state of Israel."

Finally, what does this mean for the president's goal of spreading democracy in the Middle East?
This year, radicals have gained footholds in Egypt and Lebanon, won the presidency in Iran and now Hamas.

"I think America is perceived in the world, whether we mean it or not, to have a very simplistic and rather naive view of the wonderful results that are going to flow from the election process," says former Sen. Sam Nunn, who now works for the Nuclear Threat Initiative.

In fact, many experts say voting alone doesn't create democracies, not without first establishing other institutions, including the rule of law.